Jump to content
House Price Crash Forum
Sign in to follow this  
Reck B

Commercial Property - Offices

Recommended Posts

I'm considering buying an office for my business instead of renting

Reasons;

We have a nice stash of funds in reserves

We're outgrowing our current leased office -

Current lease expires in 18 months

errr.

You can't go wrong with bricks 'n morter :ph34r:

Renting is dead money :ph34r:

Does commercial property have far to fall?

Share this post


Link to post
Share on other sites

Who knows if it has further to fall or not. I suppose it will depend on how many businesses are still going to go bust in the coming 12/24 months?

However another important consideration for a business, is do you actually want fixed premises. A one man band garage may do, but other types of businesses may want more flexible accomadation? Is it worth the business actually owning some offices?

Share this post


Link to post
Share on other sites

OK as long as you need it long term. You will pay full rates even if the building is empty. Do the maths and work it out for yourself. Some buildings may have scope for future development, as a bonus.

Share this post


Link to post
Share on other sites
I'm considering buying an office for my business instead of renting

Reasons;

We have a nice stash of funds in reserves

We're outgrowing our current leased office -

Current lease expires in 18 months

errr.

You can't go wrong with bricks 'n morter :ph34r:

Renting is dead money :ph34r:

Does commercial property have far to fall?

What sort of yield can you buy for at the moment?

Share this post


Link to post
Share on other sites

Prime yields in the west end Mayfair St James are currently 5.5% this is for a new building fully let to a tenant of good covenant for 15+ years rack rented (ie rent and the rental value being the same). There is nothing being sold like this at the moment the sales being transacted are closer to the 6.00-6.50% for good kit with decent lease profiles in good locations.

The City prime yields are 6.50% again this is for a new buidling with a tenant of good covenant for 15+ years rack rented (ie rent and the rental value being the same). Some deals are being done around the 6.75% mark.

Investors are looking for long income streams (long leases) to secure tenants (good financial backing)

Rental vlaues may fall a little more 10%, so vacant floors are being scrutinized and are seen difficult to relet by investors. The fully let buildings on long leases dont need to worry about these falls due to upwards only rent reviews which are industry standard atm.

NB These are prime yield for the best of the best properties, secondary properties ie Long Leaseholds slightly off prime pitch with vacancy or overrented space or buildings that will require refurbishment are being traded at a discount.

More investors are circling for the secondary properties now due to the lack of prime stock, but they are looking for deals and good short terms income which they could then refurbished redevelop to hit the upturn and when rental levels are rsing and the yields go in further

Share this post


Link to post
Share on other sites
What sort of yield can you buy for at the moment?

8%ish

maybe 10% for stuff very secondary

With regard to the opening poster, I will give this opinion from someone inside the commercial property business.

Values are generally 40% to 55% off peak. It looks like the banks are looking to protect their balance sheets by not flooding the market which should prevent values falling sharply in the near future, however recovery in value looks a way off at present.

Another consideration is that rents are falling and are considered likely to continue falling, also on new contracts considerable rent free periods are generally available. Falling rents are one of the reasons yields have become so soft.

Overall commercial leases are not as favourable for tenants as residential ASTs as there can be a large dilapidations bill at the end of a lease and if the building is multi let, the service charge can be high especially if the landlord decides to do refurbishments.

On balance, I would come down just in favour of buying your own, although you should exercise caution and make sure your figures double stack up

Share this post


Link to post
Share on other sites

The deals that are being done now are as someone who has already pointed out 40% from peak.

Now is a good time to buy as you may have more sucess in actually finding something suitable. Also I do not believe rents will fall much further, commercial lanlords have been hammered.

If you are in a strong position now then I dont think that you can go too far wrong, just buy at the nest possible deal. In the commercial world you could also instruct an aquisiton surveyor to act on you behalf.

Share this post


Link to post
Share on other sites
What sort of yield can you buy for at the moment?
8%ish

Instinctively 8% looks a reasonable rate of return for a reasonably good commercial property, not an absolute steal and they could (I guess) still fall further but long term you probably won't go too far wrong.

Compare and contrast this with the yields available on residential property (mostly on a par with super-prime west end) and you can see why I still think we've a long way down to go.

Share this post


Link to post
Share on other sites

If you have the available funds that won't be required elsewhere, the property is excactly what and where you want and the business will require the offices long-term then I'd recommend buying. You probably, could pick up some new-build off a distressed developer for build cost.

If any part of the deal is based on trying to make a quick buck from commercial property then forget it, there's still a lot to go wrong with commercial property. There's an oversupply of offices and an undersupply of pragmatic arguments as to why we need many of them at all.

Share this post


Link to post
Share on other sites
Instinctively 8% looks a reasonable rate of return for a reasonably good commercial property, not an absolute steal and they could (I guess) still fall further but long term you probably won't go too far wrong.

Compare and contrast this with the yields available on residential property (mostly on a par with super-prime west end) and you can see why I still think we've a long way down to go.

Meh..not so sure

Blackstone just bought into the Broadgate office complex in Liverpool Street (London) at 7% initial yield

So 8% for whats probably a small secondary office property aint so cheap...

... and whos to say you couldn't haggle the rent down by 20%...

..then your 8% becomes 6.5%, which definately doesn't look so hot...

Still if its ideal and your requirments are quite specific, you're unlikely to see another one for a while...

Share this post


Link to post
Share on other sites
Meh..not so sure

Blackstone just bought into the Broadgate office complex in Liverpool Street (London) at 7% initial yield

So 8% for whats probably a small secondary office property aint so cheap...

... and whos to say you couldn't haggle the rent down by 20%...

..then your 8% becomes 6.5%, which definately doesn't look so hot...

Fair enough, I've only got a passing acquaintance with the industry. 8% looks the right sort of ballpark provided it is a realistically achievable rent but perhaps in the current market you should be looking at more like 10%. I'd be interested to know how this compares to yields before the CP bubble started.

But back to my other point - BTL investors are still letting to Waynetta Slob (c/o the DHSS) at the same yield as professional investors are prepared to let to BP on a 15 year full repairing lease - to me that looks a bit mad! :wacko:

Share this post


Link to post
Share on other sites
Fair enough, I've only got a passing acquaintance with the industry. 8% looks the right sort of ballpark provided it is a realistically achievable rent but perhaps in the current market you should be looking at more like 10%. I'd be interested to know how this compares to yields before the CP bubble started.

But back to my other point - BTL investors are still letting to Waynetta Slob (c/o the DHSS) at the same yield as professional investors are prepared to let to BP on a 15 year full repairing lease - to me that looks a bit mad! :wacko:

On the other point I agree with you fully, except BTL investors are evidently accepting a LOWER yield than on prime offices

:unsure::huh::blink::lol::lol::lol::(

Share this post


Link to post
Share on other sites
Fair enough, I've only got a passing acquaintance with the industry. 8% looks the right sort of ballpark provided it is a realistically achievable rent but perhaps in the current market you should be looking at more like 10%. I'd be interested to know how this compares to yields before the CP bubble started.

But back to my other point - BTL investors are still letting to Waynetta Slob (c/o the DHSS) at the same yield as professional investors are prepared to let to BP on a 15 year full repairing lease - to me that looks a bit mad! :wacko:

Saw very little above 6% unless it had loads of voids and was very difficult to let.

Prime was about 3%

Client of ours bought recently on a property that will eventually yield 13% (after some defective leases fall out of the equation) - they will have to spend £0.5m doing it up though.

That said, excellent long term investment for them

Share this post


Link to post
Share on other sites
Saw very little above 6% unless it had loads of voids and was very difficult to let.

Prime was about 3%

Client of ours bought recently on a property that will eventually yield 13% (after some defective leases fall out of the equation) - they will have to spend £0.5m doing it up though.

That said, excellent long term investment for them

Anybody who invested in property at a 3% yield was asking to be spanked

The bizarre thing is assuming they put 20% down they can still probably service the interest on their loans right now

Explains why there hasnt been much pain felt yet generally <_<

Share this post


Link to post
Share on other sites
Saw very little above 6% unless it had loads of voids and was very difficult to let.

Prime was about 3%

Anybody who invested in property at a 3% yield was asking to be spanked

So was 3% to 6% a usual yield before the bubble started or was it really a mid bubble rate?

Share this post


Link to post
Share on other sites
So was 3% to 6% a usual yield before the bubble started or was it really a mid bubble rate?

I think really if you could buy commercial property at a bit above the rate you could borrow at it was any okay investment, ignoring anything fancy you could do with it

So if base rate were 5% and generally you could borrow 60-75% of the purchase price at base plus 150-200 bps interest, you were looking for prime property to be yielding 6.5% to 7.5% etc

You would look for secondary propertty to be yielding 2%-4%, give or take, above this (8.5% to 11.5%), because:

- you could borrow less to buy it

- you had to pay more margin on your loan

- it was more risky

Mind you what i set out above is just a snapshot :unsure:

Share this post


Link to post
Share on other sites

It depends what you want and where.

Vacant buildings are struggling to shift. Smaller buildings that used to be targeted by owner occupiers aren't going as small companies can't raise the debt.

As a broad brush - Ask a local expert what the rental value is. Assuming it's a small property that would generate interest from small business's (therefore risky from an investors viewpoint) then times the rental value by 10 and pay that. You won't be far off.

Central London is a completely different market.

Where are you looking and what kind of size?

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • The Prime Minister stated that there were three Brexit options available to the UK:   295 members have voted

    1. 1. Which of the Prime Minister's options would you choose?


      • Leave with the negotiated deal
      • Remain
      • Leave with no deal

    Please sign in or register to vote in this poll. View topic


×

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.